Population growth, low interest rates and a strong tourism are supporting spending, along with a good dose of Kiwi DIY, ASB economist Kim Mundy says.
Commenting on the latest Statistics New Zealand retails sales data, Ms Mundy said December's retail spending outcome was consistent with reasonable spending growth and did not alter the bank's view on economic growth.
The ASB continued to expect the Reserve Bank to cut the official cash rate in June and August to a low of 2%.
Retail sales grew by 1.2% quarter-on-quarter in the three months ended December, slightly weaker than market expectations of 1.5%.
The lift was broad-based with 12 of the 15 categories having higher sales volumes in the quarter.
There were significant contributions from tourism, housing-related and discretionary spending categories.
Excluding motor vehicles and fuel, the increase in sales was even stronger, with core sales rising 1.4% in the quarter.
The figures showed spending related to tourism grew strongly over the quarter with accommodation lifting 4.8% quarter-on-quarter.
Housing-related spending also grew. Hardware, building and gardening supplies rose 5.3% and furniture, floor coverings and houseware lifted 0.8% after two quarters of falling sales.
Discretional spending categories, such as electronics (up 2.7%), dining out (0.9%), liquor sales (1.7%), and specialised food (2.2%), also continued to look healthy.
Ms Mundy said total sales value rose 1.2% against the ASB forecast of 0.8%.
"The retail sales deflator wasn't as weak as we expected, especially given the weak December consumer price index inflation result. Nevertheless, retail price inflation remains subdued. Overall, this indicates consumers are still getting relatively good bang for their buck.''
Looking at sales from a regional perspective, it was rural New Zealand spending up the most in December.
Sales in the North Island, excluding Auckland, Waikato and Wellington, grew by 3.4% in the quarter.
The South Island, excluding Canterbury, was not left out with sales up 2.7%, Ms Mundy said.
Auckland was left behind but still reported a robust 1.7% rise in spending. Sales fell in Wellington by 0.8%, Waikato sales fell 0.7% and Canterbury sales were down 0.4%.
"Over the coming few months we expect low interest rates, strong migration and strong tourist inflows will continue to provide support to spending.''
However, uncertainty around the dairy outlook might dampen confidence, and limit sales growth, especially if it looked like dairy prices might remain weak for the 2016-17 seasons as well, she said.
On balance, spending growth was expected to remain moderate in the near term.
